When employees at the breakdown assistance firm RAC picked up their newspapers on Wednesday they were shocked to find that insurer Norwich Union was planning a takeover. There was little warning. And worse was to come. Aviva, Norwich Union's parent group, told the stock exchange later in the morning that its plan involved a major restructuring of the business, with job cuts totalling 1,700.

The announcement comes only a month before new rules come into effect obliging large and medium-sized companies to consult staff over major changes to their organisations, including job cuts.

Employment lawyers said Norwich Union would be forced to consult with RAC staff unions or new "staff consultative forums" under the new rules.

Meriel Schindler, head of employment law at Withers, said firms would no longer be allowed to make announcements without talking to staff first.

The rules, which take effect on April 6, follow a slow build-up of rights for employees emanating from Brussels. The EU regulations first brought in works councils for pan-European firms. At the annual council meetings, employers were called on to discuss major issues of concern to staff. Then employees were given more time to consult over redundancies, especially if large numbers of employees were picked out for the sack.

Under the new EU regulations, employers must allow employees to form staff consultative forums and give them enough information to discuss strategic changes.

The Department of Trade & Industry says: "From 6 April 2005 employees in organisations with 150 or more employees will have a right to be informed and consulted on a regular basis about issues in the organisation they work for. Or ganisations with 100 or more employees will come within the scope of the legislation in April 2007, and ones with 50 or more employees in April 2008.

The department says the rules in the legislation will not apply automatically. "An employee request must be made by at least 10% of employees in the organisation (subject to a minimum of 15 and a maximum of 2,500).

A spokeswoman says the new law is designed to encourage employers, staff and their representatives "to agree information and consultation arrangements that suit their particular circumstances - it does not spell out the subjects, method, timing or frequency of the arrangements that are allowed".

If an employer does nothing, the regulations outline a default procedure. Existing agreements, she says, will carry on if they enjoy the support of the workforce.

Norwich Union and the RAC were unable to agree which firm should take re sponsibility for communications with staff at the time of the takeover announcement.

A spokesman for the RAC said the stock exchange listing rules prevented either firm from making any public disclosures before telling the stock market.

Richard Smith, employment specialist at business advice firm Croners, said he expected most companies would continue to ignore the legislation during takeovers, believing the stock exchange rules would take precedence.

But unions said the listings rules did not rule out confidential discussions with staff representatives prior to notifying the stock exchange. "Neither the listing rules nor UK takeover rules prevent firms sharing price-sensitive information with employee representatives in confidence before a public announcement," says a spokesman for Amicus, which represents workers at both Norwich Union and RAC.